MNI ANALYSIS: Australia Sentiment Up But Spend Outlook Subdued

--Westpac-MI Consumer Sentiment Above 100 for 8 Straight Months

--Views On Housing Market Weaken

By Sophia Rodrigues

     SYDNEY (MNI) - Consumer sentiment rose in July to the highest level since

November 2013 but was driven mainly by optimism about economic outlook while

indicators related to household spending which are more important for the

Reserve Bank of Australia's monetary policy, remained subdued.

     The weak indicators related to housing market and view on current family

finances, apart from subdued view on job security.

     Data published by Westpac-Melbourne Institute Wednesday showed consumer

sentiment rose 3.9% m/m to 106.1, the highest since November 2013. The index is

now 8% above the average in 2014 to 2017 but is still below the 108.3 average

recorded over the ten years prior to the global financial crisis. This was the

eighth straight month of a reading above 100, and marks a turnaround in the

previous year when 11 out of 12 readings were below 100.

     The rise was driven mainly by view on economic outlook with the 'economic

outlook, next 5yrs' sub-index surging 9.8% in July to be up nearly 20% on a year

ago. The 'economic outlook, next 12 months' sub-index also posted a solid 3.9%

rise to be up 13.5% y/y. Both sub-indexes were well above their long run

averages.

     Westpac's senior economist Matthew Hassan said the rise likely reflects

developments around tax policy with the government's multi-year tax cut package

passing into legislation in June and the first round of relief coming into

effect on July 1. This was reflected in a 12.3% rise in sentiment among the

'middle income' households with annual incomes in the A$60,000 to A$80,000

range.

     According to Hassan, while the rise in sentiment is a welcome development,

the details related to family finances were less comforting. This, together with

stalling in expectations about improvement in labor market and further signs of

weakness in housing-related sentiment, could mean a lift in consumer demand is

unlikely in the near term.

     The view on family finances improved in July but the two sub-indexes

remained below long-run average reads.

     The unemployment expectations index declined 0.8% in July but was 3% above

the average read over the first five months of the year, and indicated the index

has stalled after posting a significant improvement over the second half of 2017

and the first few months of 2018.

     Expectations on house prices fell 6.2% to 112.5, a new low since early

2016, with a sharp pull-back seen in New South Wales and Victoria.

     The 'time to buy a dwelling' index fell 2.5%, and at 103.1 the index was

positive but well below the long run average read of 120.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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